We are very judgmental, particularly when it comes to prices. We can always tell whether something is a good or bad deal. The fact that some of the ways we do this are not as accurate as others doesn’t even occur to us.
Knowing that customers have different ways they evaluate your pricing that are sometimes inaccurate shouldn’t upset you, though. It’s a bonus to realize it. Once you understand how people judge your pricing, you can use strategy to present it better and maximize your pricing to gain profit.
There are three basic ways that customers evaluate your prices. These have varying levels of simplicity and accuracy. The most accurate way is not the easiest, naturally, and vice versa. However, these three ways come together to deliver the good-deal-bad-deal message to your customers’ consciousness.
Some retailers are wise to these judgmental ways. They use customers’ natural propensity to compare pricing when communicating their offer, so it comes out on top against competitors. However, some choose a different tack, which doesn’t always make it easy to compare.
Still others spend their time building a reputation for low pricing while offering a few high-priced things alongside hoping that no one does the math. Since we don’t always do the math, it works.
In this episode, we explore the three ways that customers evaluate your pricing and why. We also talk about how you can present your prices in the best possible way to tip the scales away from bad deal to good.
Here are some other key moments in the discussion:
- 03:17 Ryan kicks off the discussion with a story about shopping for milk at Costco, and why he was wrong (and his wife was right) about the best deal for milk.
- 05:22 Colin shares one of his favorite YouTubers that covers things like pricing, and reveals some retailer tricks of which every consumer should be aware.
- 07:13 Ryan shares the three ways that people evaluate pricing, starting with internal reference pricing.
- 09:37 We discuss how external reference pricing also influences our pricing evaluations, and sometimes even across product categories.
- 11:53 Ryan explains the third category, which is price image, an evaluation we gravitate toward when we don’t have as much information.
- 19:32 We share the two dimensions that organizations should consider when they anticipate how customers will evaluate pricing.
- 22:06 We explain how price images form and how they influence our decision making.
- 34:19 We wrap up with some practical ways you can leverage this understanding to present your pricing in the best possible way to customers.
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